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Oil climbs as drop in US stockpiles tempers economic worries

Oil climbed after a reported drop in US crude inventories alleviated some of traders' concern that slowing economic growth will diminish demand.

PHOTO: REUTERS

[SINGAPORE] Oil climbed after a reported drop in US crude inventories alleviated some of traders' concern that slowing economic growth will diminish demand.

Futures advanced as much as 1.5 per cent in New York on Wednesday. The American Petroleum Institute reported a 3.45 million-barrel decline in stockpiles last week, people familiar with the data said. That brings some relief for investors concerned about the global economy with US President Donald Trump showing little urgency to resolve trade disputes and calling for a "big" interest-rate cut by the Federal Reserve.

Crude is down about 18 per cent from its late April highs as the trade war between the US and China, the world's biggest economies, weighs on demand. Tension in the Middle East and efforts by the Organization of Petroleum Exporting Countries and allied producers to curtail output have failed to boost prices.

"It's a tight market right now," said Bjarne Schieldrop, the Oslo-based chief commodities analyst at SEB. "But the assumption is that the future will be very bleak and bearish."

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West Texas Intermediate crude for October delivery rose as much as 82 cents to US$56.95 a barrel on the New York Mercantile Exchange, and traded for US$56.79 at 8.19am local time. The September contract settled 13 US cents higher at US$56.34 when it expired on Tuesday.

Brent for October settlement rose 94 US cents, or 1.6 per cent, to US$60.97 a barrel on ICE Futures Europe after closing 0.5 per cent higher on Tuesday. The benchmark crude traded at a premium of US$4.19 to WTI, compared with an average of about US$7 in the past year.

The decline in US stockpiles in the API data is more than double the 1.5 million-barrel drop forecast in a Bloomberg survey. Inventories at the storage hub of Cushing, Oklahoma, fell by 2.8 million barrels, the API was said to report. That would be the biggest decrease since February 2018 if confirmed by the official Energy Information Administration figures on Wednesday.

"The drawback will certainly help support sentiment," said Daniel Hynes, a senior commodity strategist at Australia & New Zealand Banking Group in Sydney. "But the market is definitely taking the glass-half-empty type approach to data."

There's a 35 per cent chance the US economy will enter a recession in the next year amid ongoing tensions between the US and China, according to economists surveyed by Bloomberg.